European drafting at a crossroads

By Kevin Wey

May 20th, 2006

The NHL finds itself at a crossroads entering the 2006 NHL Entry Draft. Six years ago at the 2000 NHL Entry Draft, 123 of the 293 players selected over nine rounds were selected out of European leagues, a record high 42 percent. The 2001 NHL Entry Draft was more of the same, as 119 of 289 players selected were drafted out of the European ranks, 41.2 percent of the players taken. The number of players drafted out of Europe dropped more markedly in each of the three drafts after the 2001 Draft, down to 88 in the 2004 NHL Entry Draft. Only 30.2 percent of the players selected in the 2004 Draft were drafted out of Europe, a significant decrease, but the bottom seemed to fall out on European prospect speculation at the 2005 NHL Entry Draft.

Only 50 of the 230 players selected the 2005 Draft were drafted out of European leagues, only 21.1 percent. A percentage this low had not been seen since the 1991 NHL Entry, when the Quebec Nordiques, Hartford Whalers and Winnipeg Jets were part of the Original 21 and the San Jose Sharks still had yet to play an NHL game. This stark decrease in the number and percentage of players drafted from Europe had nothing to do with a dearth of talent in Europe, but had everything to do with a seismic shift created by the new Player Transfer Agreement (PTA) between the NHL and the IIHF and the new collective bargaining agreement (CBA) between the NHL and the NHLPA.

f”>The new PTA had not yet been agreed to when the 2005 Draft was held July 30 in Ottawa, but the NHL clubs all knew it would likely involve an increase in the transfer fees. In late July and early August, the NHL and IIHF were still trying to present a formula that Russia would agree to. A transfer fee formula starting with $900,000 for a first overall pick, and then decreasing by $20,000 through 30th, was in consideration during the draft. This potential formula would only have charged $150,000 in transfer fees for players drafted in the second round or later. This formula was abandoned when it became clear that the Russian hockey federation would not sign any IIHF agreement, and a different formula was agreed upon on Aug. 16, which may mark the beginning of a new era in the NHL Entry Draft.

The previous PTA, a three-year agreement effective from the summer of 2001 through the summer of 2004, was fairly straightforward. NHL teams paid a basic development fee of $200,000 for players selected in the first and second rounds, and $120,000 for players selected in the third or subsequent rounds. Under the new PTA, NHL teams pay a basic development fee of $200,000 for all transfer players that fall under the agreement, meaning third- through seventh-rounders now cost $80,000 more to transfer than they previously did, if they are one of the first 45 transfers. For the 46th through 60th transfers, the development fee increases to $225,000. The new PTA also caps the number of transfers at 60, which works out to two per NHL team. These clauses mean NHL teams will have to compete to sign their prized European transfers before the competition. NHL teams compete hard to win the Stanley Cup, now they’ll have to compete against each other to keep costs down for signing European prospects.

NHL teams are also in a battle against time to sign their European transfer players. For over 10 years, NHL teams were allowed to sign European transfer players through a mid-September deadline, which allowed NHL teams to get a “free” look at their European transfers invited to training camp. The new deadline for signing a European transfer is June 15, before the 2006 NHL Entry Draft and potentially before the Stanley Cup Playoffs are finished in this Olympic year. Because the general signing deadline falls before the Draft, the new PTA contains a clause that allows NHL teams to sign prospects selected in the 2006 Draft through July 15 with no additional transfer fee. There is a signing deadline extension from July 16 through August 15, but any player selected in the 2006 Draft signed during this period will cost NHL teams an extra $100,000 in transfer fees.

Thus, the only way to get a “free” look at a European transfer player selected in the 2006 Draft would be to hold a summer development camp before July 15, and then sign that player before the July 15 deadline, if he impresses. However, he’d better be a regular in the NHL in his first season under a standard player contract (SPC).

The newest feature of the current PTA is a stipulation that if a European transfer player plays in less than 30 NHL games in his transfer season, including the playoffs, his NHL team must pay an additional fee. An NHL team pays a fee of $50,000 for first rounders who player fewer than 30 games, $100,000 for second rounders, and $150,000 for players selected in the third or subsequent rounds in their draft year. Thus, there is the potential that an NHL team could pay the IIHF a total of $475,000 in fees for a player selected in the 2006 Draft that is signed that same summer, but after the July 15 deadline, and is also the 46th transfer or higher. This is nearly four times what an NHL team could expect to pay in transfer fees for a third rounder under the previous PTA.

An October IIHF press release stated that the new progressive clause “was implemented to reduce the signings of players who are low-end NHL quality.” In other words, it’s designed to keep fringe NHLers in Europe, playing in their elite leagues back home, instead of filling a spot in the AHL. Now that NHL teams have to pay a penalty for not dressing European transfer players in at least 30 games in the first year of their SPC, NHL teams will have to think twice about when they sign their European prospects, but they don’t have long.

For years, NHL teams have only had two years in which to sign their players drafted out of the major junior ranks. Now, under the new CBA, that same rule is applied to players drafted out of Europe. Starting with those players selected in the 2005 NHL Entry Draft, no longer will an NHL team be able to draft a player out of Europe and hold on to his rights for a few years without having to sign him. Any player drafted out of Europe in the 2005 Draft who doesn’t sign by June 1, 2007, 5:00 p.m. EDT, either re-enters the draft or becomes a free agent, depending on whether he’s 20 (re-enters) or older (free agent). The two-year signing deadline, mixed with the 30-game clause, means NHL teams can bank on giving the IIHF money if they want a European player bad enough.

First overall pick Sidney Crosby was the only player, North American or European, selected in the 2005 Draft signed last year who would have fulfilled the new 30-game clause for European transfer players. Crosby is Canadian, of course, but the New Jersey Devils will be sending the IIHF a $50,000 check for Nicklas Bergfors playing for Albany for all of the 2005-06 season. Obviously, the Devils thought Bergfors, a first round pick in the 2005 Draft, was worth the extra fee, and Bergfors did have a solid rookie season in Albany. Even the vast majority of 20- and 21-year-olds require AHL seasoning before playing in the NHL, so NHL teams would be wise to just plan on paying the 30-games clause fee on their European transfer prospects.

There’s no way around it, either. The new CBA no longer allows NHL teams to draft overage Europeans. In previous seasons, such European players drafted in their mid-20’s were top players in their European elite leagues and far closer to NHL-ready than their younger European counterparts. Now, NHL teams will have to sign players like Marek Zidlicky, an overage drafted by the New York Rangers in the 2001 Draft, as free agents, meaning NHL teams can no longer get the inside track on such players by drafting them but will instead have to battle in the free market for them. Waiting for a European to become a free agent has its benefits, as the 30-game clause does not apply. The new CBA does require NHL teams to wait until the year a player turns 22 to sign him as a free agent. Thus, any undrafted European born Dec. 31, 1984, or earlier, is eligible to be signed as a free agent this year. An undrafted European player born after Jan. 1, 1985, will have to wait until 2007.

The combination of the higher basic development fee for late rounders, the two-year signing limit, and the 30-games clause all make drafting players out of Europe far less attractive than it once was.

Although the transfer fees aren’t as steep as the $900,000 decreasing by $20,000 formula that was considered, NHL teams may still have to pay such a transfer fee if they draft players from one country that did not sign the PTA.

Unlike the Czech Republic, Finland, Germany, Slovakia, Sweden and Switzerland, Russia did not sign the IIHF Player Transfer Agreement. The Washington Capitals had to take Dynamo Moscow to court in order to get Alexander Ovechkin over to North America in 2005-06, and Ovechkin’s contract with Dynamo had even expired after the 2004-05 season. That’s not the case with the Pittsburgh Penguins Evgeni Malkin, one of the Russian Super League’s top players as a 19-year-old. The young Metallurg Magnitogorsk forward looked like an NHL All-Star at the Olympics in Turin, but the Penguins may not even get him until 2008, when Malkin’s contract with Magnitogorsk expires. Magnitogorsk general manager Gennady Velichkin has been quoted as comparing the potential transfer of Malkin to Pittsburgh to the transfer of a famous Ukrainian soccer player to one of the top European football clubs.

“How can Dynamo Kiev receive $18 million from Milan for Andriy Shevchenko and we cannot?”

In December 2004, Shevchenko was named the European Footballer of the Year, meaning Malkin would have to win the Hart Trophy to equal the comparison, but Malkin is an incredibly talented player, so Velichkin’s question has merit. Would it be fair to Magnitogorsk for Pittsburgh to pay only $200,000 in transfer fees on Malkin when the Pens could potential pay that exact same transfer fee for 2005 fourth round pick Tommi Leinonen? Or if Nashville pays the same transfer fee for Patric Hornqvist, the final player selected in the 2005 Draft? In fact, since both Leinonen and Hornqvist would both almost certainly not meet the 30-games clause in 2007-08 (the season they both would have to be signed or both teams lose their respective rights) Leinonen’s and Hornqvist’s respective European clubs would likely get some portion of a minimum $350,000 transfer fee, as the IIHF does receive an administrative fee.

If Magnitogorsk truly held out for $18 million, and if Pittsburgh paid it, that total would be nearly half of the $39 million salary cap in 2005-06. Other Russian clubs could follow suit and demand higher transfer fees from NHL clubs trying to sign their Russian prospects, which could make drafting Russians risky business until the Russian federation signs its own transfer agreement with the NHL.

Knowing Russia was unlikely to sign the PTA, NHL teams only drafted 10 players out of Russia in the 2005 NHL Entry Draft. The first Russian selected in the 2005 Draft was Vitaly Anikeyenko, by the Ottawa Senators with the 70th pick of the draft. The Senators took the second Russian in the 2005 Draft as well, Ilya Zubov, with the 98th pick. No Russian prospects were taken in the first two rounds of the 2005 Draft, and only four were taken in the first five rounds. Russia still tied the Czech Republic for the second most players selected out of a European country, but 10 is a far cry from the 43 of the 2000 Draft.

Even if a team is willing to pay all of the IIHF transfer fees or negotiate transfer fees with Russian clubs, a European player may not want to come to North America. The CBA caps compensation for players under an entry-level standard player’s contract playing in the minors at $62,500. Thus, the most a European player on an entry-level SPC could make is less than he’s probably making in a European elite league. The minimum a player on a two-way contract can make in the minors, whether they’re in the AHL or on loan to the ECHL, is $35,000. Top players in Europe can make six-figure contracts, especially if they play in Switzerland, Germany or Russia. A player with a strong chance of playing in the NHL will sacrifice a little pay in the AHL for a big NHL contract later, but a longshot European prospect has as little inclination to come North America as his NHL club does paying the new transfer fees to bring him over.

Given the new transfer fees, the two-year signing limit, the 30-game clause, and the cap of minor pro compensation, the days of drafting project European prospects may be over. NHL teams will be more likely to select only those young Europeans who are already playing in their country’s top professional league or are among their country’s very best junior players. Selecting a European transfer prospect who is more than two years away from pro hockey in North America makes little sense under the new PTA and the new CBA, especially when players heading the collegiate route can be selected instead.

Players selected out of the United States Hockey League or the various Tier II junior A hockey leagues could have up to six or seven years of development off of their NHL team’s watch and dime. The same is true for players selected out of the U.S. National Developmental Team Program, high school hockey, or prep school hockey. San Jose Sharks 2004 draft pick Brian Mahoney-Wilson was taken out of Massachusetts high school, played 2004-05 in the Eastern Junior Hockey League, 2005-06 in the British Columbia Junior Hockey League and the USHL, and looks to play 2006-07 in the USHL, after which he’ll have four more years of collegiate eligibility. Mahoney-Wilson is an example of a seven-year prospect that an NHL team could take to buy itself time to develop other prospects already in the system. Mahoney-Wilson may not have even been two years away from college hockey in 2004, but by 2011 he just may be a legitimate NHL prospect. Regardless, the Sharks won’t have to make a decision on Mahoney-Wilson until he’s 25.

Another positive of taking players on the collegiate track is that they can be signed at any time as well. Hobey Baker winner Matt Carle left Denver University in March, after his junior year of college hockey was done, to sign with the Sharks and play for them down the stretch and in the playoffs. The University of Minnesota’s Danny Irmen, (Minnesota), North Dakota’s Drew Stafford (Buffalo) and Matt Smaby (Tampa Bay), and Wisconsin’s Robbie Earl (Toronto) all followed Carle’s lead and signed after their junior seasons. North Dakota’s Travis Zajac signed with New Jersey after his sophomore season, and the Golden Gophers Kris Chucko did the same by signing with Calgary in April. Drafting players on the collegiate route allows NHL teams the most flexibility in organizing their prospect depth chart by signing players when those players are ready and by maintaining their rights for the maximum amount of time. Players on the collegiate track also do not require six-figure transfer fees or worrying about pro contracts in Europe that have no NHL escape clause.

The new CBA andPTAcould even make Canadian college hockey a more viable path. The CIS hasnotgenerally been considered a breeding ground for NHL talent, but the SanJoseSharks defenseman Will Colbert in the 2005 NHL Entry Draft knowing hewouldbe playing CIS hockey with St. Francis-Xavier. The former Ottawa 67’scaptain received prime ice time with the X-Men in 2005-06, instead ofskating as a sixth or seventh defenseman in the AHL, and the Sharksstillretained Colbert’s rights. CIS hockey may not be as esteemed as NCAA DIhockey, but it is full of former major junior players and Tier IIjunior Aplayers and even some ex-pro players, so it can keep a prospect playingat ahigh level of hockey while an NHL team still maintains that player’srights.The CIS route may never be popular, but it is possible.

However, NHL teams will continue to draft and sign European transfer prospects who they believe can contribute to their organization, as the Dallas Stars proved when they signed 2005 third round pick Perttu Lindgren May 17. If the 2005-06 Sm-Liiga Rookie of the Year does make the jump to North America in 2006-07, instead of staying in Europe one more year like the Stars had Swiss goaltender Tobias Stephan do in 2005-06, Lindgren will likely play for the AHL Iowa Stars, not in the NHL. Given that Lindgren is unlikely to play over 30 NHL games in his rookie season in North America, the Stars are looking at $350,000 in transfer fees for Lindgren. Successful prospects like Lindgren will ensure that NHL teams continue to draft players from Europe, but the balance is now in the favor of North American players. It makes little sense to draft a marginal European transfer prospect when a team can draft a North American project player instead, especially those players on the collegiate track who have not yet started college and give NHL team maximum flexibility.

The current Player Transfer Agreement may only be a two-year agreement that expires after the 2006-07 season, but it does set a precedent for future Player Transfer Agreements. The percentage of players drafted out of Europe hit a 14-year low at the 2005 NHL Entry Draft, and the 2006 NHL Entry Draft will serve as an indication as to what direction NHL teams will be going in subsequent drafts, assuming that future PTA’s follow in the footsteps of the current one. Knowing that first round picks won’t require a minimum of $300,000 in transfer fees, which was possible under the other formula considered, NHL teams may select more than five players out of Europe in the first round of the 2006 Draft. Whether NHL teams select around 50 players out of Europe in the 2006 Draft, or far fewer than 50, is yet to be seen.

Because the new CBA does not award compensatory draft picks to NHL teams for losing unrestricted free agents (it only awards compensatory picks for teams that tender a bona fide offer to a first round draft pick and are unable to sign that player), the number of selections in the 2006 Draft will be even fewer than the 230 selections in the 2005 Draft, meaning the number of players selected out of Europe could logically fall to slightly below 50 and not mark a significant change from the 2005 Draft.

What could stabilize the situation is if the Russian hockey federation signs a PTA with the NHL prior to the 2006 NHL Entry Draft. There is hope that new Russian hockey federation president Vladislav Tretiak can improve relations with both the IIHF and the NHL. If Russia signs its own PTA with the NHL, having a concrete agreement with which to gauge exactly how much a Russian transfer will cost would give NHL teams much more confidence to draft Russians, even if it costs more than the PTA with the IIHF, which controls transfers from the Czech Republic, Finland, Germany, Slovakia, Sweden, and Switzerland. Without an agreement with Russia, the number of players drafted out of Europe could drop significantly below the 50 selected in 2005.

If Russia does sign a PTA with the NHL prior to the 2006 Draft and the number of players selected at the 2006 Draft approaches or drops below 40, the message is clear: The NHL Entry Draft is in a new era.

How much are European prospects worth to the 30 NHL clubs? How good does a European prospect have to be to justify all of the new potential transfer fees?

The NHL Entry Draft is at a crossroads heading into the 2006 Draft, but the compass will set in Vancouver.

Included below are three tables: one detailing the various transfer fees by round, one showing the European drafting trend since the 2000 Draft, and a final one showing how many players were drafted out of Europe each of the past six drafts sorted by the country from which the player was drafted (not necessarily his nationality). Note: For the purposes of the article above and the tables below, Los Angeles Kings 2004 draft pick Yutaka Fukufuji of Japan is considering a European transfer player. The tables do not reflect those European players who were drafted while playing as imports in junior leagues in North America.